Factors in Economic Development

A. K. Cairncross

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136878367
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

First published in 1961, this work is a compendium of essays written by esteemed economist Sir Alexander Cairncross, pertaining to the theme of economic development. A wide cross-section of factors are taken into account in this extensive collection of articles, amongst which are the importance of investment and technical progress; trade; administration and planning; and the role of education.

PART I: THE SETTING

CHAPTER 1

The Poverty of Nations¹

I

TWO hundred years ago, when Adam Smith was trying to systematize his ideas about economic development, he chose as the title of his exposition The Wealth of Nations. Today, if he were expounding the same theme, he would be more likely to include in the title a reference to poverty as well as wealth. The most challenging problem confronting economists remains what it was in his time: to bring to light the forces that determine the economic growth and development of nations. But it would now be more natural than it was in 1776 to look at the problem in comparative terms and ask why growth should be faster in one country than another, whether the gap in standards of living between rich countries and poor is likely to widen or narrow and what might be done to promote a greater measure of international equality.

There are many reasons for this shift in emphasis. It does not result solely from the facts of poverty and inequality on the international plane for these facts have been with us from time immemorial. Even in Adam Smith’s time there was a perceptible and growing difference in the levels of economic achievement in different parts of Europe and between Western Europe and most of the Continent of Asia. But it was impossible, in the absence of statistics, to measure these differences or to detect any systematic foundation for them. A few centuries earlier Europe had not been conspicuously prosperous and in a few centuries’ time the lead might pass to other continents. The fortunes of nations might revolve in a vast cycle in obedience to the laws of nature and society: they certainly did not move forward ineluctably from one generation to the next. Progress was a merry-go-round, not a railway train. If economists speculated on the reasons for those phases of the cycle when the forces of growth were in the ascendency they hesitated to assume that the cycle had been broken and that society had entered an indefinite period of cumulative and self-sustaining growth. On the contrary, long after Adam Smith, the literature of economics is strewn with prophecies of a stationary state in which growth would finally cease under the influence of some limiting factor such as population growth, the law of diminishing returns, a fuel shortage or a chronic tendency to over-save.¹ It would be very difficult to point to any economist in the nineteenth century or even the first forty years of the twentieth who embraced the view that the gap between rich countries and poor was destined to go on widening without any foreseeable limit.

Even when this gap had already become far too large to escape attention, economists could still treat it as a temporary affair. Having seen one country after another follow in Britain’s wake and begin to overhaul her, they tended to adopt the optimistic view that it was only a matter of time before the whole world economy would be in movement and that once movement began it was at least as likely to be an advantage as a disadvantage to be a late starter. In any event, there were problems enough in the advanced countries without any compulsion to give thought to what was going on in those that remained backward; and there were few economists in backward countries capable of challenging the views of western economists and forcing them to re-examine the special obstacles to development that backwardness imposes.

The main shift in opinion did not take place until the war and post-war years. Largely because of the setting up of new international organizations with world-wide economic responsibilities, economists became much more knowledgeable about the problems of under-developed countries, more alive to the importance of these problems and more fascinated by their intellectual challenge. A constant stream of statistics poured from the United Nations and its associated institutions, and a long series of economic surveys, reports of missions, and special studies provided ample background for the interpretation of the statistics. It became possible for the first time to measure with some degree of precision the scale and pace of economic advance in the under-developed countries, to map out its predominant features and to understand the economic and social forces controlling it. Attention was focused as never before on economic development. Just as the statisticians who studied the life and labour of the poor towards the end of last century aroused the public conscience and gave it direction in dealing with poverty, so the statisticians of today have brought home the poverty of nations and the need to do something about it. The under-developed countries are the slums of the world economy, and slumming has become the fashion again.

The flow of statistics and reports is not the only reason for the growing consciousness that something must and can be done. As more and more of the under-developed countries gain political independence their ambitions become increasingly centred on economic independence and on the freedom which comes from greater wealth. Their poverty stands out more starkly when it can no longer be blamed on colonial rule. It is felt to be less excusable the more rapidly other countries draw ahead of them, including countries like Japan and Russia which only recently were almost equally poor. Above all, the very fact that nearly all of them are now undergoing perceptible development sharpens their consciousness of backwardness, brings home the attainability of more rapid progress and with the perversity of human appetite makes it grow by what it feeds on.

Nor is it only the less advanced countries that have been roused from apathy; the richer countries are more concerned to help them. The nearer they approach a solution of their own economic problems, the more intolerable seem the misfortunes of others and the easier it is to indulge the ordinary obligations of humanity. Just as in our own country it was difficult to campaign against poverty so long as it was part of the accepted order of things and its inevitability was demonstrated by moralists and economists alike, so it has only been since the economic backwardness of other nations ceased to appear inevitable that deliberate efforts have been made to assist them. No doubt these efforts have been quickened by a sense of the attractions that Communism offers to countries seeking a short-cut to industrialization. No doubt also we are still far from any sense of unity in a single world economy in which national aspirations have to give place to duties to our international neighbours. But already it has come to be accepted that, in international as in national affairs, the economically backward have a moral right to look for assistance to the economically advanced.

This was not so even at the end of the last war. The colonial powers usually recognized an obligation to promote the development of their colonies and this sometimes involved them in outright financial grants. But such grants were always on a purely bilateral basis and any international participation would have been strenuously resisted. In Britain the Colonial Development and Welfare Fund was still not in existence; and in the United States, aid for the underdeveloped countries was dismissed as ‘feeding the Hottentots’. We have travelled a long way since then.

Curiously enough, one of the most decisive steps had no apparent relationship to the under-developed countries. The Marshall Aid Programme so triumphantly demonstrated the possibilities of international aid that it left behind a great fund of goodwill for similar experiments in other continents. By an expenditure of $13,000 m., or about 4 per cent of its income for one year, the United States succeeded beyond all expectations in helping the economies of Western Europe to recover from the destruction and dislocation of war. After only two and a half years industrial production was 40 per cent and agricultural production 20 per cent higher than in the best pre-war years. It is natural to feel that if the resources of all the industrial countries were mobilized and a similar effort of collaboration went to the promotion of world-wide economic development, the results might be equally spectacular. It was no doubt some such hope that inspired Mr Kennedy’s declaration in his Inaugural Address:

‘To those new states … of half the globe struggling to break the bonds of mass misery, we pledge our best efforts to help them help themselves, for whatever period is required. … If the free society cannot help the many who are poor, it can never save the few who are rich.’

II

We cannot hope to form any satisfactory judgment of the help that might be given to the under-developed countries without some knowledge of their circumstances. Since each country is unique we must limit ourselves to broad generalizations applicable to most of them without dwelling too much on the exceptions, however important.

First of all, nearly all the most backward countries are in three continents: Asia, Africa and Latin America. Of these three, Asia is by far the largest in population since every second human being lives there. Africa and Latin America both have a population slightly larger than that of the United States. Some countries in these continents, such as Japan and South Africa, are relatively advanced, just as some European countries are still relatively backward. But the broad division is accurate for most purposes.

This means, secondly, that the under-developed countries are those that lie closest to the equator. This would be even more true if we were willing to leave out Japan (which is no longer one of the poorer countries), China (which used to be one of the most advanced) and Argentine, Uruguay and Chile (all of which are among the most prosperous of the less advanced countries). It is more accurate to contrast the tropical with the temperate countries than the countries of the northern half of the world with those of the southern half (as Sir Oliver Franks has suggested), all the more as the countries of Asia lie almost entirely to the north of the equator.

If, thirdly, we take average income per head as a broad measure of the difference between rich countries and poor, we find a small group of countries at one extreme with per capita incomes of $1,000 or over. Britain just scrapes into this group which also includes North America, Australia, New Zealand and some of the Scandinavian countries. At the other extreme is a long list of countries, which together make up over half the population of the world, with per capita incomes of $100 or less. Even if we allow for all the ambiguities that such comparisons involve, there is no reason to doubt that between the poorer half of humanity and the top tenth the disparity in living standards is at least of the order of 1:10.

We know, moreover, that most of this disparity is the product of the last hundred years or so. In many of the richer countries real incomes have risen at least fivefold within the past century while in the under-developed countries it is inconceivable that incomes should ever have been so far below their present level and quite possible that in some of them incomes have fallen rather than risen.

There is also no doubt that the gap in standards of living is a growing one. Even if the under-developed countries were able to improve their incomes ten times as fast as the most advanced countries, the gap would still widen. A 10 per cent annual increase in per capita incomes would add less than $10 to the average, while in the United States a 1 per cent increase would add $20. It is not impossible that the United States might achieve a rate of growth that would add more every year to her average income per head than the entire income per head available in some of the under-developed countries.

While the absolute size of the gap is undoubtedly growing, it is not so certain that the more advanced countries are showing a faster rate of growth than the under-developed countries. Many of the Latin American countries in particular have maintained remarkably high rates of growth over the past decade—rates well in excess of those recorded in the United States or the United Kingdom. On the other hand, some countries like Indonesia have shown very little change. The scatter is so wide that to take an average and make comparisons with the corresponding average for advanced countries is not only seriously misleading but yields different results at different hands. Some distinguished economists go on repeating with increasing emphasis that it is the advanced countries that are growing faster, while others, no less distinguished, produce statistics that suggest the contrary. Whatever the difference, it is not uniform, and it is consistent with widespread improvement at a rate which, by nineteenth century standards, is far from disappointing, however much contemporary expectations may have risen. But it still leaves three-quarters of the world’s population in conditions of extreme poverty and without hope of any radical transformation in these conditions within the next decade or two.

The basis of livelihood in nearly all the under-developed countries lies in primary production. Their citizens are for the most part peasants, farming small plots of ground by primitive methods, often on an insecure tenure and encumbered by debt. Sometimes there are extensive mineral deposits, including oil, which make it very much easier to earn foreign exchange. But these deposits, which are a matter of luck, do little to enrich the mass of the population or provide them with employment. It is agriculture that is the staple activity. Manufacturing, on the other hand, is underdeveloped.

Nor are these two circumstances unconnected. For since agriculture tends to be backward and the cultivators are poor, the market for manufactured goods is limited and more easily supplied from abroad. Apart from all the other difficulties of introducing modern factories, the scale on which production for the domestic market could be undertaken is often insufficient to allow the use of specialized equipment at full capacity. Thus the typical under-developed country exports primary produce exclusively, and obtains manufactures in return from the more advanced countries to which its exports are directed. They are in this sense dependent economies, meeting the overspill of demand from foreign economies and to some extent limited in their development by the pace set for them by industrial expansion in other countries.

For most of them international trade is of the greatest importance. To take an extreme example, 40 per cent of the income of Ceylon is derived from production for export, nearly twice as high a proportion as applies to Great Britain. The more they are drawn from purely subsistence activities to produce for sale against money the higher tends to be the relative size of the export sector and the greater their dependence on foreign demand. The range of exports which they can make is usually extremely limited while the imports which they require are highly diversified. The list of products which, collectively, they supply is also an extremely limited one so that they are usually brought into keen competition with one another; and as world markets for these products tend to be highly inelastic and to expand relatively slowly, their power to enlarge their export earnings without damage to the economies of other under-developed countries is correspondingly restricted.

Yet the picture of primary producing countries specializing heavily on individual products and dependent on the industrial countries for nearly all the manufactures which they can afford to buy is one that must obviously be qualified. Most of what they grow they consume themselves and if they could grow more to meet their own needs they would have no need to wait on world markets for an incentive to expand. What the world buys from them relieves their poverty because it presumably offers a better return than production for their own requirements. But if the world market is limited this does not put a stop to agricultural improvement. The poorer they are, the more urgent is an enlargement of food production to supply the domestic market and meet domestic needs.

Similarly, it is an oversimplification to imagine that all their manufactures are imported. Many of them have already a thriving industrial sector. As we know to our cost, now that we are a net importer of cotton textiles, the textile industry in particular has a firm footing in under-developed countries all over the world and some of these countries have emerged as large exporters. India is almost unique among them in deriving half her export earnings from manufactures. But there are many others that are at least capable of meeting most of their domestic requirements of consumer goods. Taking the under-developed countries as a group, we cannot be far wrong in assuming that they manufacture about half as much as they import. Naturally this proportion varies greatly from country to country. It is also very much less for machinery than for consumer goods: a circumstance of particular importance when the under-developed countries try to force the pace in industrializing themselves and are obliged to finance the importation of most of the necessary capital equipment out of their limited and inelastic export earnings.

Finally, we must take account of the fact that whatever the inequalities between countries in the world economy these inequalities are repeated, often far more strikingly, within the under-developed countries themselves. There are great inequalities in wealth and social conditions; and these inequalities tend to be aggravated in the early stages of growth, since it is often the rich who either respond to the opportunities that development offers or win uncovenanted benefits when it takes place. We need only think of some of the Arab oil-producers or of many of the countries of Latin America to remind ourselves of the magnitude of these inequalities and of the strains and stresses in the social and political fabric which they occasion. The problem of reconciling economic development with entrenched inequalities is not the least of the difficulties confronting those who would like to contribute from the outside to the elimination of poverty and backwardness.

There is another sense in which the major problem is one of inequality within the under-developed countries. Again and again we find within them an astonishing spread between the primitive and the modern. In technology they may display the whole gamut of human progress from the Stone Age to the latest advances in medical science. Even in Japan one finds side by side a brand-new steel works and a workshop almost unchanged since mediaeval times. One can read of Arab sheikhs arriving on a camel to continue their journey by Comet. In Latin America there are villages where the only major change since the arrival of the Spaniards has been the introduction of the wheel and not far off are great ports equipped to handle Transatlantic liners. Alongside towns that rival or surpass the cities of our own country are the miserable shanty towns in which the human overspill collects; and in the hinterland, the mass of the population are housed in conditions that may be more picturesque and less squalid but conceal still greater poverty.

These juxtapositions are a vivid reminder that there are always two sides to development: the initial innovation and its subsequent dissemination. The main current that sweeps us forward is a current of thought: rising from those distant landmarks where modern science has its source and flowing in an ever broadening stream of experiment and discovery. The current cannot be confined within the boundaries of national states: men of all countries can draw from it and...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Copyright Page
• Dedication
• Table of Contents
• PREFACE
• PART I: THE SETTING
• PART II: INVESTMENT, TECHNICAL PROGRESS AND DEVELOPMENT
• PART III: TRADE
• PART IV: ADMINISTRATION AND PLANNING